Abstract: Motivated by regulatory questions in the personalized pricing of products such as health insurance, we pose and answer the following question: how much (if any) private information would the buyer want the seller to have in a bilateral trade setting? In our setting, the buyer's value for a good depends on his private type and the quality of the good that is unknown to him. The seller learns about the quality via a private signal whose realization is the seller's private information. This quality affects both the buyer's value and the seller's cost. We characterize the buyer-optimal outcome: this is the signal and the corresponding seller-optimal equilibrium of the informed principal game that yield the highest consumer surplus. We show that there are conditions under which private information for the seller can lead both to greater profits and higher consumer surplus; that is, compared to being uninformed, seller private information can lead to Pareto gains. The seller's signal in the buyer-optimal outcome is typically not fully informative.
Paper link (coming soon)
Stern IO Seminar Fall 2022 Schedule
If you would like to be added to the distribution list or for further details regarding this seminar, please contact Asma Imam (ai555@stern.nyu.edu)